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Bed Bath & Beyond Inc BBBY

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Economic Moat




Coronavirus Hinders Cadence of Turnaround at Bed Bath; Shares Modestly Undervalued

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

No-moat Bed Bath’s first quarter suffered from store closures over most of the period, with only Buybuy Baby and Harmon benefiting from essential retailing status. Net sales from stores fell 77%, around the same store declines of 70% we had forecast. However, e-commerce surged (up 82%), representing two-thirds of sales in the period, tempering total sales declines to 49%, at $1.3 billion. Cost metrics were also impacted by COVID-19’s disruption, with the gross margin falling 780 basis points to 26.7% (below the 28% we expected), as digital costs, lower margin mix, and deleverage of costs hindered expense metrics. We were glad to hear the firm would be undertaking significant store closures (about 200 locations) over the next two years, as we expected about 350 boxes would be shuttered over the next decade. While we plan to change the timing of our store closures in our model, we still believe Bed Bath will either further prune the store base or divest some brands, exacerbating square footage losses. In this vein, we don’t plan any material change to our $11.30 fair value estimate and view shares as modestly undervalued.

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Company Profile

Business Description

Bed Bath & Beyond is a home furnishings retailer, operating around 1,500 stores in all 50 states, Puerto Rico, Canada, and Mexico. Stores carry an assortment of branded bed and bath accessories, kitchen textiles, and cooking supplies. In addition to 955 Bed Bath & Beyond stores, the firm operates 262 Cost Plus stores, 127 Buybuy Baby stores, 81 Christmas Tree Shops and And That Stores (gifts/housewares), 53 Harmon Face Values stores (health/beauty care), and linens/textile wholesaler Linen Holdings. It is in the process of divesting online retailer (which was supposed to be to be completed in March but has been postponed) and has recently sold the One Kings Lane business.

650 Liberty Avenue
Union, NJ, 07083
T +1 908 688-0888
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings May 31, 2020
Fiscal Year End Mar 2, 2020
Stock Type Distressed
Employees 55,000